ConsumerWatch: Retailers face season of shoplifting

GAINESVILLE, Fla.(CBS.MW) -- Retailers are welcoming shoppers and their record high consumer confidence with open arms this holiday season, but stores are also standing guard.

"It's got to come out of somebody's pocket, and it comes out of the American consumer's pocket."

Richard Hollinger, University of Florida

Shoplifting, known as "the second-oldest profession," continues to plague stores to the tune of an estimated $10 billion a year, according to the University of Florida, and experts agree the increase in temporary workers is exacerbating employee theft to even higher loss statistics.

Supermarkets alone apprehended nearly 204,000 shoplifters in 1998, and the value of the merchandise recovered was estimated at $7.9 million, according to a report from the Food Marketing Institute.

"Retailers sell a lot of merchandise and they lose a lot of merchandise during this time," said Richard Hollinger, a sociology professor and director of the shoplifting research project at the University of Florida in Gainesville. "The hope is that they'll sell enough to make up for the loss."

With stores losing an average of two percent of total sales to "shortage" including shoplifting and internal theft, few can afford to skimp on countermeasures. So retailers are stepping up their investments in loss prevention plans ranging from electronic tag devices and closed circuit television cameras to "integrity shoppers" that check up on employees' ethics.

In 1997, stores spent 0.57 percent of their annual total sales of $2.4 trillion on protection systems, up from 0.3 percent from the early '90s, according to research from the University of Florida. It's money that's well spent, according to Hollinger. "A few dollars spent on technology can give them back hundreds of dollars in savings."

Consumers pay

Although tracking devices have become more advanced, affordable, and effective in foiling some theft attempts, stealing continues to jeopardize an already sensitive line of business.

"For retailers it could mean the difference between a good year and a bad year," said Bruce Van Kleeck, vice president of member services for the National Retail Federation, a Washington trade group. "Retail theft or retail inventory shrinkage, as they call it in the industry, comes right off the company's bottom line."

But it's not just stores that suffer when merchandise disappears. So-called five-finger discounts translate into discontinued product lines or merchandise that is locked up or otherwise inaccessible.

"The vendors and the retail stores have profit margins that they're working on that they're expected to make," said Carl Donnelly, a 16-year loss prevention veteran who now heads a self-named consulting firm in Fenwick Island, Delaware. "If they don't make it, then next season they have to either not sell the product or raise the price to cover the losses."

And raise prices they do. Consumers end up paying as much as 12 percent more for items to cover the losses, said Hollinger. "The 'crime tax' is higher than the government tax probably by a factor of two, maybe higher in some areas," he said. "It's got to come out of somebody's pocket, and it comes out of the American consumer's pocket."

At the same time, Hollinger said the Federal Reserve has done such a good job controlling inflation that retailers are "hard-pressed" to raise prices now.

It's a subject many retailers are reluctant to talk about. Representatives from Dillard's
DDS, -2.14%
and Dayton Hudson
DH, +0.09%
declined to comment on their anti-theft policies or whether they've raised prices due to shrinkage. Melissa Berryhill, spokesperson for Wal-Mart
WMT, -0.74%
wouldn't say how much the discounter spends on loss prevention but did say its store policy is to prosecute shoplifters "to the fullest extent of the law" in order to keep prices low.

The holiday effect

Since the holidays are known as much for their depression rates as for their sales figures, the season can push would-be thieves to cross the line. "Shoplifting is rarely about greed, poverty, or values," said Peter Berlin, executive director of Shoplifters Alternative, a national shoplifting rehabilitation program based in Jericho, New York.

"It's about individuals struggling with their own personal conflicts and needs. So during the holidays, for example, people will turn to shoplifting as a way to give themselves a special gift or a lift in order to relieve the pressures of the season." See related story.

Stores deal with the problem in different ways. Circuit City
CC, -0.63%
said it tested so-called "smart tags" that may someday be expanded to include warranty and purchase information through embedded chips in products, but the electronics retailer is now using small tags from Checkpoint
CKP, -1.37%
Many smaller retailers use less-expensive ink tags to foil thieves.

But one method that seems to help while serving a dual purpose is old-fashioned customer service. "The more stores practice good customer service, the more definite the correlation between better sales and better shortage figures," said Donnelly. "There's nothing like an attentive and alert sales staff."

Even so, experts agree there is no identifiable profile of a shoplifter. They can be clergy, professionals, elderly people on fixed incomes, housewives, juveniles, virtually any consumer, said Hollinger.

Stores have a variety of options when they catch a shoplifter in the act of stealing. They can press criminal charges and make a civil demand for a fine or dismiss the person with a warning.

Inside jobs

Retailers who are desperate to fill seasonal jobs are also wary of their short-term employees who have access to stock rooms, cash registers, and know how to disable tags. Although there are deterrents, workers can use their position to enable a hybrid form of shoplifting known as "sweethearting" where they either look the other way while a friend steals or neglect to ring up every article during check-out.

Van Kleeck of the National Retail Federation said internal theft is quickly eclipsing shoplifting as public enemy number one among his major retailer membership. He is not alone in citing the tight labor market for creating this trend.

Hollinger, who has studied retail theft for 10 years, said the biggest change he's noticed is stores' increasing reliance on temporary workers. Combine that with a decreasing unemployment rate and the result is a "pool of candidates who are reduced in quality and quantity when (retailers) need them most," he said.

Calling it "the most significant crime problem in America today as measured in dollars," Hollinger said employee theft in the retail sector, which he estimates at $12 billion a year, costs the American economy more than vehicle theft, which is just less than $8 billion.

Hollinger said short-term workers have little incentive to feel invested in the success of their employers. "Stores realize that they're going to pay in a number of different ways for having this less committed workforce."

Companies that recognize these tendencies can boost morale and reduce shrinkage by hiring from their seasonal staff during the year, said Hollinger. "I think that pays off down the road because they get a trained and more committed staff."

Lack of awareness

"We're in a great boom period right now and it's just not been a hot topic."

Carl Donnelly, Carl Donnelly & Associates

Although shoplifting and theft is an ongoing drain on the economy, it hasn't been the subject of any public service announcements or awareness campaigns lately. "We're in a great boom period right now and it's just not been a hot subject," said Carl Donnelly.

One reason could be that shoplifting is often perceived as a minimal offense or even as rite of passage, said Van Kleeck.

"The term itself infers victimless petty crime," he said. "We have a problem with the police and law enforcement and even the judicial system saying shoplifting is a relatively minor property crime, and often penalties imposed are very minimal, even for repeat offenders sometimes."

Richard Hollinger, who said the Department of Justice rejected an earlier request to fund his study, relies mostly on funding from tag manufacturer Sensormatic Electronics
"
to continue the University's annual survey. "Drugs and violence are the sexy topics," he said of the Capitol's priorities. "I think most politicians have been afraid to deal with the other crimes even though they may be costing us as much or more."

But the relationship between the illegal drug economy and shoplifting is clear in the professional organized shoplifting rings which do the most damage, he said. "To have one person clean your shelves off in an afternoon or in 15 minutes is really quite deadly. We're beginning now to appreciate that there is a subterranean market for this in which this merchandise goes into a supply chain that then is repackaged."

Retailers sometimes end up buying back their own merchandise after it's been recently shoplifted in another city, Hollinger said. They can tell by counterfeit packaging or by tracing it back through lot numbers and security tags. Even e-tailers aren't immune to theft since their warehouses are often targets. "Some of the biggest cases have come out of distribution centers," said Van Kleeck.

On the individual level, Van Kleeck recommends shoppers overcome their aversion to blowing the whistle and report shoplifters to store security. Many retailers like Albertson's
ABS, -0.88%
Urban Outfitters
URBN, -1.61%
Target, and Mervyn's subsidize their shoplifters' $65 confidential treatment at Shoplifters Alternative, which is known for its 98 percent success rate in helping people kick the habit, according to Peter Berlin.

"(Shoplifters) don't know why they steal but we do," said Berlin. "Our objective is to help individuals stop shoplifting because they're really self-destructing."

Intraday Data provided by SIX Financial Information and subject to terms of use.
Historical and current end-of-day data provided by SIX Financial Information. Intraday data
delayed per exchange requirements. S&P/Dow Jones Indices (SM) from Dow Jones & Company, Inc.
All quotes are in local exchange time. Real time last sale data provided by NASDAQ. More
information on NASDAQ traded symbols and their current financial status. Intraday
data delayed 15 minutes for Nasdaq, and 20 minutes for other exchanges. S&P/Dow Jones Indices (SM)
from Dow Jones & Company, Inc. SEHK intraday data is provided by SIX Financial Information and is
at least 60-minutes delayed. All quotes are in local exchange time.